This month we are concentrating on something that effects most types of Insurance policies – Underinsurance.
What is Underinsurance
Underinsurance is when you do not have adequate insurance to cover the cost of loss or damage to the insured item. It might seem like a good idea to save money on your insurance premium however there are massive consequences of underinsuring your home or business. Statistics show that up to 70% of individuals and businesses are under insured.
What happens when you are Underinsured
In the event that you are underinsured your insurer will apply an averaging clause to your claim payout. Simply put – if you only insured 60% of your property, you will only receive 60% of the claim settlement.
You have insured your building for $60,000
During a claim your building is found to have a replacement value of $100,000
In this instance your payout will only be 60% of $60,000 a total of $36,000
This can cause massive stress and financial strain.
How to avoid Underinsurance
In the office we often say if the entire building was to burn down and you need to remove the debris and start again including the slab what would the rebuild cost be? This is essentially the correct sum insured. However, we recommend you engage a licensed insurance valuer to assist in this.
Tips to avoid Underinsurance:
– Contact our office when things are changing
– Review your sums insured regularly
– Keep Inflation in mind
– Engage a licensed insurance valuer
If you have any questions or are concerned that you are Underinsured please contact our office.